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Facts
The assessee, Patidar Builder Pvt. Ltd., engaged in construction and development, filed its return for AY 2010-11 declaring Rs. 13,11,535/-. The Assessing Officer (AO) assessed total income at Rs. 2,23,92,730/- after making disallowances/additions under Sections 40A(3), 37, and 68. Aggrieved by the CIT(A)'s order, which provided only partial relief, the assessee filed an appeal before the ITAT.
Held
The Tribunal partly allowed the appeal. It upheld the disallowance under Section 40A(3) for cash payments, except for Rs. 41,730/- made on a Sunday, which was deleted. The disallowance of bad debts under Section 37 and the addition for unexplained advances under Section 68 were both remanded to the AO for fresh adjudication, allowing the assessee to present further evidence and receive necessary opportunities.
Key Issues
1. Whether the disallowance of cash payments made in violation of Section 40A(3) was justified. 2. Whether the disallowance of bad debts under Section 37 was correctly upheld. 3. Whether the addition for unexplained advances from customers under Section 68 was valid.
Sections Cited
Section 40A(3), Section 37, Section 68, Section 143(3), Section 143(2), Section 142(1), Section 131, Rule 6DD(j) of Income-tax Rules, 1962, Rule 46A of Income-tax Rules, 1962
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI PARESH M. JOSHI
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 11.12.2023 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 28.03.2013 passed by learned JCIT, Range-2, Bhopal [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2010-11, the assessee has filed this appeal.
The background facts leading to present appeal are such that the assessee is a company engaged in the business of builders and developers. For AY 2010-11 under consideration, the assessee filed return declaring a total income of Rs. 13,11,535/-. The case was selected for scrutiny and the Page 1 of 8 Finally, the AO passed assessment-order u/s 143(3) determining total income at Rs. 2,23,92,730/- after making certain disallowances/additions.
Aggrieved, the assessee carried matter in first-appeal and got part relief. Still aggrieved, the assessee has come in next appeal before us.
The grounds raised by assessee are as under:
“ 1. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the addition made by Assessing Officer under Section 40A(3) of the Act amounting to Rs.637595/-. The Appellant prays that the addition be directed to be deleted.
2. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the disallowance made by Assessing Officer in respect of bad debts amounting 294240/- under Section 37 of the Act. The Appellant prays that the disallowance be directed to be deleted.
3. On the facts and circumstances of the case and in law the learned CIT(A) has erred in confirming the addition made by Assessing Officer under section 68 of the Act amounting to Rs. 4375120/- holding it as bogus since non- genuine. Further the CIT(A) erred in not deciding the ground in full with respect to advances amounting to Rs. 268480/- made by the AO. The Appellant prays that the said advances be held as genuine and the addition be directed to be deleted.”
Ground No. 1:
In this ground, the assessee challenges the disallowance of Rs. 6,37,595/- made by AO and upheld by CIT(A) on account of payments made in violation of section 40A(3).
Having heard the learned Representatives of both sides and on a careful consideration of the details of payments filed by Ld. AR for assessee
Page 2 of 8 cash payments on different dates/days to the suppliers of material and labour purchased by assessee for consumption. The details submitted by Ld.
AR clearly indicates that the suppliers are private parties. Ld. AR agrees that the payments attract disallowance u/s 40A(3) but he defends assessee’s case on two-fold premises. The first defense pleaded by Ld. AR is such that all payments have been made towards genuine business expenses and hence disallowance should not be made. However, this pleading is made for the sake of argument only and we indicated to Ld. AR during hearing itself that his contention/claim remains unsubstantiated to which Ld. AR instantly agreed. Therefore, the pleading is rejected.
The second defense made by Ld. AR is such that following payments were made on Saturdays and Sundays:
Ld. AR submitted that the assessee deserves benefit of following exception provided in Rule 6DD(j) of Income-tax Rules, 1962 according to which the payment required to be made on a day on which banks were closed on account of holiday cannot be disallowed:
Page 3 of 8 AY 2010-11 “(j) Where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike.” Initially, Ld. AR submitted that the banks were closed on Saturdays and Sundays but on further deliberation and strong opposition by Ld. DR for revenue, the Ld. AR agreed that he does not have any evidence to establish that the banks were closed on Saturdays (in the year 2009 / 2010 when the impugned payments were made). However, he submitted that the banks certainly remain closed on Sundays. Ultimately, both sides agreed that the benefit can be granted to assessee for the payment of Rs. 41,730/- made on Sunday to M/s Laxmi Iron appearing at S.No. 5 in the Table above. In that view of matter, we delete the disallowance to the extent of Rs. 41,730/- and uphold rest of the disallowance. The AO will modify assessment-order accordingly. This ground is partly allowed.
Ground No. 2:
In this ground, the assessee challenges the disallowance of Rs. 2,94,240/- made by AO and upheld by CIT(A) on account of deduction of bad debt.
Having heard the learned Representatives of both sides and on a careful consideration of the facts of issue narrated by Ld. AR in Written- Synopsis, we find that the assessee claims that a sum of Rs. 5,00,000/- was given by way of advance to one “Shri Chatur Narayan” on 16.08.2007 vide Cheque No. 705791 towards buying a piece of land. However, the deal was Page 4 of 8 remaining amount of Rs. 2,94,240/- could not be recovered, the assessee ultimately debited to P&L A/c and claimed deduction. The issue was deliberated and it is observed that the assessee has not filed any supporting evidence before lower authorities and even before ITAT except filing the Ledger A/c of Shri Chatur Narayan extracted from its own books of account.
Ld. AR for assessee, however, requested that the assessee has claimed a genuine deduction of loss suffered by it and the same should not be disallowed for lack of evidence. Ld. AR requested that the assessee shall make one more effort to gather evidence in this regard and hence this issue may be restored to the file of AO for a fresh adjudication. Ld. DR for revenue, however, objected and submitted that the assessee has not brought any evidence till now, hence the disallowance made by AO must be upheld without giving any further opportunity to assessee. After a careful consideration, we find that since we are remanding the next Ground No. 3 to the file of AO for a fresh adjudication, there would be no prejudice to revenue if this issue in Ground No. 2 is also restored at the level of AO. At the best, the restoration of this issue to AO would advance the cause of justice by enabling the assessee to submit evidence and at the same time, the AO would be able to make a better adjudication to collect legitimate tax from assessee. If the assessee still fails to submit evidence before AO, the AO would be entitled to make addition. In that view of matter, we remand this ground to the file of AO for a fresh adjudication after considering any Page 5 of 8 opportunities to assessee. Accordingly, this ground is allowed for statistical purpose.
Ground No. 3:
In this ground, the assessee challenges the addition of Rs. 43,75,120/- (correct amount should be Rs. 46,43,800/-) made by AO and upheld by CIT(A) on account of unexplained advances received from customers.
Having heard learned Representatives of both sides and on a careful consideration of the orders of lower-authorities, we find that the assessee has received impugned advances from 10 customers (Page 9 of assessment- order). During assessment-proceedings, when the AO asked assessee to explain these advances, the assessee filed a detailed reply dated 22.03.2013 which is re-produced by AO in Para 7.2 of assessment-order. In the reply so submitted, the assessee claimed that the impugned advances received from customers were either adjusted against sales made to those customers or refunded to those customers in subsequent years from time to time. But the AO, vide Para 7.3 of assessment-order, rejected assessee’s submission for want of supporting evidences. Although the AO made an attempt to collect evidences from customers through the process of section 131 but did not get any support from those customers also. Ultimately, the AO concluded against assessee and made addition. During first-appeal, the assessee filed
Page 6 of 8 assessee also filed an application under Rule 46A of Income-tax Rules, 1962 to CIT(A) for admission of additional evidences, copy of assessee’s application is filed at Page 58 of Paper-Book. However, the CIT(A) has echoed the observations of AO only and has nowhere discussed the assessee’s application and the evidences so filed. After deliberation, the learned Representatives of both sides were ad idem that this issue should go back to the file of AO for adjudication afresh. We accordingly remit this issue to AO for a fresh adjudication after considering assessee’s evidences and after giving necessary opportunities to assessee. The ground raised by assessee is allowed for statistical purpose.
In the final result, this appeal is allowed partly.
Order pronounced in open court on 28/07/2025